The majority of hedge fund investors are not looking for double-digit returns from their hedge fund investments.
A Preqin survey finds that 67% of institutional investors look for annual returns between 4% and 6% while just 6% of investors seek returns of more than 10%.
Investors are looking for their hedge fund portfolios to produce returns uncorrelated to equity markets (59%), produce robust risk-adjusted returns (53%) and dampen portfolio volatility (46%).
The largest proportion of investors (36%) state that they think diffrent benchmarks should be used for separate strategies in hedge fund portfolios. This may be influenced by the fact that 51% of investors stated that hedge funds are a diverse group of strategies and aggregating performance across styles is irrelevant to benchmarking.
Sixty-three percent of investors use an external hedge fund-specific benchmark to assess their hedge fund portfolio’s performance. Although the S&P 500 is the most favoured non-hedge fund specific benchmark among investors—with 19% of investors surveyed using it to assess hedge fund performance—nearly one-quarter (24%) of investors stated that the S&P 500 and other public indexes are no longer relevant to hedge fund performance.
“Investors are looking for hedge funds to do more than produce high returns; in fact, it is their ability to produce risk-adjusted absolute returns, which are uncorrelated to equity markets, that appeals to these institutions,” says Amy Bensted, Preqin’s head of hedge fund products. “Investors are the most satisfied with returns they have ever been, with hedge funds having largely lived up to investors’ expectations on an absolute and risk-adjusted basis over the short, medium and longer terms.”
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